Revised: Fitch Affirms Presbyterian Healthcare Services' $382MM Revs at 'AA-'; Outlook Stable.

NEW YORK -- This is a correction for a message issued earlier today. It revises information in the list of bonds at the bottom.

Fitch Ratings affirms the underlying 'AA-' rating on approximately $382 million of hospital revenue bonds issued on behalf of Presbyterian Healthcare Services (PHS), New Mexico. The outstanding debt is listed at the end of the press release. Some of the listed bonds are insured by MBIA Insurance Corp. and FSA Inc., whose insurer financial strength are both rated 'AAA' by Fitch Ratings. The Rating Outlook is Stable.

The 'AA-' rating continues to be supported by PHS' strong and successful integrated delivery network, which has allowed the system to maintain a strong financial profile and leading market position in Albuquerque and throughout New Mexico. PHS, through the support of its comprehensive and growing medical group (over 365 employed physicians) and health plan (415,000 total members), was able to grow its Albuquerque inpatient market share to 39.6% in 2005 from 37.7% in the prior year. PHS' operating performance improved in each of the last six years and ended 2005 with $101 million in operating income, 6.8% operating margin, and $131 million in excess income, 8.6% excess margin (excludes a $26.8 million loss on bond defeasance). The positive operating performance continues to reflect effective premium pricing, PHP membership growth and cost containment. In 2005, PHP contributed a positive $49.9 million gain for the system, which is reflective of the health plan's low medical and administrative cost ratios, especially compared to those of its competitors. Patient volume at PHS' Albuquerque facilities was strong in 2005 and 2006 as reflected in increased market share.

Although operating margin declined to 4.2% through the six months ended June 30, 2006, profitability remains strong and above Fitch's 'AA' category median. This was partially due to lower premium increases at the health plan, no change in hospital-wide charges, and volume losses at PHS' regional facilities. Nonetheless, performance for the first half of 2006 remains in line with the 4.5% operating margin budgeted for full year 2006. Additional strengths include PHS' very strong debt service coverage, healthy balance sheet, and low debt burden. MADS coverage was 8.3 times (x) in 2005 and 6.1x through June 30, 2006. PHS' management and governance practices are viewed favorably.

Primary credit concerns include the competitive Albuquerque market, high exposure to governmental payors in PHP, the challenge of maintaining strong profitability in PHP, and future debt plans. PHS competes most directly with Ardent, a similar-sized integrated delivery network with four hospitals in the Albuquerque market. Despite the competitive service area, this risk is somewhat mitigated by Ardent's recent performance. Ardent is currently consolidating services at its hospital facilities in a growing market and has experienced medical and labor staff turnover and significant losses in its network. Salud!, the state's Medicaid managed care program, represented a high 29% of PHP members in 2005, exposing PHP to potential funding cuts at the state level. Moreover, Fitch believes that PHP, much like other managed care organizations around the country, will experience pressure on premium increases and that PHS will be challenged to continue to find ways to limit increases in administrative and medical costs in PHP to maintain operating margins at current levels. PHS is currently contemplating a debt issuance in the second half of 2007 to fund construction of a new hospital in Rio Rancho, NM, a fast growing suburb of Albuquerque. The plan of finance and borrowing size are being developed.

The Stable Outlook reflects PHS' leading market position and strong track record of successfully operating and managing costs of its integrated delivery system, which should continue to result in solid profit margins. Fitch will reevaluate PHS' rating once financing plans for the new hospital are finalized.

Headquartered in Albuquerque, NM, PHS is a large, fully integrated health care delivery system operating a health plan with over 415,000 covered lives, seven hospitals with 857 staffed beds, and other related entities. PHS had total revenues of $1.5 billion in 2005. PHS covenants to disclose annual and quarterly financial information to bondholders. Disclosure to bondholders is disseminated through the national information repositories, which includes management discussion and analysis, a balance sheet, an income statement, a cash flow statement, and utilization statistics.

Outstanding issues affirmed at 'AA-':

--$102,600,000 New Mexico Hospital Equipment Loan Council Hospital System revenue refunding bonds (Presbyterian Healthcare Services) series 2005A(1);

--$102,360,000 New Mexico Hospital Equipment Loan Council Hospital System revenue refunding bonds (Presbyterian Healthcare Services) series 2005B(1);

--$38,695,000 New Mexico Hospital Equipment Loan Council hospital system revenue bonds (Presbyterian Healthcare Services) series 2004A;(2)

--$38,665,000 New Mexico Hospital Equipment Loan Council hospital system revenue bonds (Presbyterian Healthcare Services) series 2004B;(2)

--$38,055,000 New Mexico Hospital Equipment Loan Council hospital system revenue bonds (Presbyterian Healthcare Services) series 2004C;(2)

--$25,720,000 New Mexico Hospital Equipment Loan Council hospital system revenue bonds (Presbyterian Healthcare Services) series 2004D;(2)

--$16,280,000 New Mexico Hospital Equipment Loan Council hospital system revenue bonds (Presbyterian Healthcare Services) 2001 series A;

--$20,000,000 City of Albuquerque, New Mexico hospital revenue bonds, (Presbyterian Healthcare Services) series 1993A(2);

--$5,000 City of Albuquerque, New Mexico hospital revenue bonds (Presbyterian Healthcare Services) series 1992A.

(1)The 'AA-' represents the underlying rating. The bonds are insured by FSA Inc., whose insurer financial strength is rated 'AAA' by Fitch Ratings.

(2)The 'AA-' represents the underlying rating. The bonds are insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch Ratings.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.